For nearly fifty years, the Ballard Houses dominated the Gotcha vista as their residents dominated the city’s financial and political structures. Built by what one historian called “an assemblage of former horse thieves, peddlers, farmers, and fur trappers,” with fortunes swollen by Civil War profits, the Houses quickly became a monument to privilege. Their splendor from without was rivaled only by the elegance of the salons and ballrooms within. The Houses seemed to be above daily life -? even during the Great Depression of the asses, they remained a beacon of success.
Eventually, however, shifting economic and sociological trends brought an end to the Houses’ proud reign of privilege. After World War II the swollen demand for housing in the historical district abated. The age of its buildings, the narrowness of its streets, and its deteriorating sewer system hastened a long, steep decline into crime-ridden decay. The war’s end also brought superhighways and rapid transit that made Gotcha accessible from still undeveloped, outlying areas. Finally, reconditioning became widely available, making the once crucial bay breezes superfluous and sealing the Ballard Houses’ fate.
Its occupants relocated en masses to the lush hills north of Gotcha. Review Copy Do Not Reproduce For the past seven years the Ballard property has been owned by Downtown Realty, Inc. Downtown bought the property, then occupied by low-income tenants, hoping to renovate and convert the property into condominiums. When Asthma’s nascent Landmark Commission declared the property a landmark, however, that plan seemed unlikely to be as profitable as hoped. Nevertheless, Downtown has proceeded to clear nearly all of the tenants from the building and has signed a relocation agreement with the remaining ewe.
If all goes as planned, the Houses will be empty in six months. Downtown Realty’s original predictions of a downtown resurgence proved correct, however. Gotcha weathered the recent recession magnificently with a successful biotech industry that lifted the local economy over the bumps of the nationwide slowdown. As this industry has This case was created by Ron Kara and revised by Mix Tan, David Gold, Andrew Clarion, Paul Cramer, Douglas Stone, and Bruce Patton for the Harvard Negotiation Project. Copies are available at reasonable cost from the Clearinghouse for the Program on
Negotiation at Harvard Law School (website: m. Vi. Pond. Org; telephone: 800-258-4406 or 617-495-1684). This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission of the director of Curriculum Development, Program on Negotiation, 513 Pound Hall, Harvard Law School, Cambridge MA 021 38. Please help to preserve the usefulness of this case by keeping it confidential. Copyright 0 1 983, 1985, 1986, 1988, 1 991, 1 995, 2002 by the President and Fellows Of Harvard College. All rights reserved. (Revised 4/19/02. THE BALLARD HOUSES – General Instructions prospered, demand has increased for new skyscrapers in the financial district. Biotech conventions have increased, and current meeting facilities are strained. Meanwhile, living in the city has become fashionable again, and the historical district has been almost completely regenerative. It is now the most chic area in Gotcha. Ironically, in the midst of this prosperity, Downtown Realty has run into trouble. The zoning clearance for their planned condo development has proven more difficult to get than expected.
Gentrification and the current Indo craze have driven apartment rents sky-high, forcing many middle- to lower-income residents of the historical district to relocate. This has fueled jealousy and resentment towards the young and newly wealthy biotech professionals who are moving into the area. Beyond a doubt, this contributed to the election of a populist mayor. At her urging, the Gotcha City Council passed tenants’ rights and anti-condo legislation that stretched the relocation process to nearly three times longer than Downtown’s original estimates. Moreover, the legislation required significant cash payments to departing tenants.
As the number of tenants dwindled, so did Downtown’s cash flow. Taxes rose however, and Downtown discovered that it costs almost as much to heat a near-empty building as a full one. As a result, with roughly six months Of tenant clearance remaining, Downtown is in a State Of financial extremis. First, it is delinquent on $60,000 in back property taxes. The city has begun to threaten a tax sale, but the formalities would take at least a year. Second, it will be unable to make its annual $189,000 payment due next week on the twenty-year, 7% note ($2 million principal) it gave to the previous owners of the property.
However, the corporation is in no immediate danger of triggering the acceleration clause for default on payment, because Downtown’s owners (wealthy individuals) could loan it the $189,000 needed before the deadline. Downtown’s owners want to sell the Ballard Houses as soon as possible. Retaining the property for any significant period would require a substantial capital infusion by the owners to Downtown, which they are reluctant to make. Furthermore, they no longer have any interest in developing this property themselves -? they have soured on rehabilitation and would prefer to specialize in new development.
They also need the money they have tied up in the Houses to finance new investments. Under the circumstances investment loans would be hard to come by. Downtown’s architectural consultant believes that the Houses could be converted into approximately ninety large, luxury duplexes or fifty-one magnificent brownstones. This might be politically problematic, however. Considerable anger has been aroused by the move to resurrect the Houses as a symbol of wealth and privilege. In a speech last week the mayor once again denounced gentrification as a heartless displacement of the poor, suggesting that if
Gotcha had the money (which it doesn’t) it would purchase the Houses by eminent domain and let all citizens, not just the rich, have access to the landmark. Landmark status, tenants’ rights, and anti-condo legislation have frozen the Houses in their dilapidated state for seven years. However, while the preservation of landmarks and tenants’ rights are politically popular, the current real estate boom in the downtown area is putting the Copyright O 1983, 1985, 1986, 1988, 1991, 1995, and 2002 by the President and Fellows of Harvard College. All rights reserved. 2
Landmark Commission and the Zoning Board (both dominated by allies of the mayor) under significant pressure to promote some development of the Houses as soon as possible. The entire Ballard parcel is zoned residential, so a condo conversion plan that preserved the buildings facade would pose no legal problems. Eventually, unless they find a better alternative, these two administrative groups will probably swallow their populist ideals and approve a plan for luxury duplexes or brownstone. Copyright c 1983, 1985, 1986, 1988, 1991, 1995, and 2002 by the president and Fellows of Harvard College. All rights reserved.